European stocks, euro fall after US vote

European stock markets have closed lower and the euro has fallen against the US dollar.

Traders on Wednesday were worried about a looming fiscal crisis in the US and gloomy growth forecasts from Europe.

After rising in early exchanges as investors welcomed an end to the US political drama, equities and the European single currency headed south as attention switched to the challenging months ahead.

At the close of trading, London's FTSE 100 index of top companies had lost 1.58 per cent to 5791.63 points, Frankfurt's DAX 30 retreated 1.96 per cent to 7232.83 points and in Paris the CAC 40 shed 1.99 per cent to 3409.59.

In New York, US stock markets tumbled on expectations that Obama's re-election will set up a tough battle with Republicans over a feared "fiscal cliff".

Advertisement

Automatic US tax and spending measures totalling about $USUS600 billion ($USA577.28 billion) are scheduled for January 1 to curb a swollen US public deficit and debt if a compromise on graduated measures cannot be agreed between Obama and the US Congress.

In midday trades, the Dow Jones Industrial Average gave up 2.49 per cent, the broad-based S&P 500 fell 2.46 per cent and the Nasdaq Composite shed 2.56 per cent.

"As we had anticipated, the focus has quickly moved on to the uncertainty over the 'fiscal cliff,' and perhaps back to the unsolved crisis in the euro-zone as well," noted Julian Jessop at Capital Economics.

Berenberg Bank economists Holger Schmieding and Rob Rood pointed to likely control by the Republican party of the US House of Representatives, noting that "continuing gridlock in Congress, as projected by the current incomplete results, is no surprise.

"But the election outcome will make it difficult to forge the required bipartisan compromises ahead of the looming fiscal cliff at the end of 2012," they said.

Obama also has to produce a long-term plan to deal with the US fiscal deficit, which the International Monetary Fund forecasts will reach 8.7 per cent of output in 2013, the Berenberg economists added.

"If no action is taken in the next two months, automatic tax hikes and spending cuts will tighten the fiscal position by a huge 5.1 per cent of GDP at the beginning of 2013.

"Without a compromise, the US will be heading for recession," they warned.

"An Obama victory ensures the continuity of the US monetary policy, which is likely to be kept loose," SHK Financial strategist Daniel So told Dow Jones Newswires.

But after a brief rise versus the US currency, the euro fell to $US1.2763 in late London deals, compared with $US1.2814 late in New York on Tuesday.

The European single currency reversed direction as the European Commission slashed its eurozone economic growth forecast for next year to just 0.1 per cent, six months after tipping a much stronger recovery of 1.0 per cent.

Official data also revealed slumps in German and Spanish industrial output in September.

In Greece, MPs were to vote on Wednesday on austerity measures needed to unlock international aid and stave off bankruptcy despite strikes and public anger against billions more euros in tax hikes and pension cuts.

The package includes 18.5 billion euros ($US23.6 billion) in new spending cuts and other reforms by 2016.

Among corporate stocks, Munich Re shares closed with a loss of 0.20 per cent at 127.35 euros in Frankfurt after the world's biggest reinsurer said it was raising its full-year profit forecast, despite the expected claims losses from megastorm Sandy that battered the United States last week.

"The result for the first three quarters is more than pleasing. Despite Hurricane Sandy, we are very optimistic of realising a profit in the region of three billion euros ($USA3.71 billion) for 2012," said chief financial officer Joerg Schneider.

At the beginning of the year, Munich Re had envisaged a full-year profit of around 2.5 billion euros.

Asian stock markets closed mixed earlier in the day, while on the London Bullion Market, gold prices climbed to $US1715.25 an ounce from $US1691 on Tuesday.